Binary Options for the Individual Investor

Binary Return Derivatives were recently
introduced to the market by the NYSE Amex and this binary option is one of the
newest derivative products to hit the market. In this article, the staff
of the NYSE discusses the two forms of this new product and highlights
the opportunities for investors.

Binary Return Derivatives (ByRDsSM) are "binary" options with a potential
per-contract fixed return amount of $100.00. ByRDs were launched by NYSE Amex on
April 21st, 2016 and are one of the newest derivative products available to the
individual investor.

ByRDs are available in two forms: Finish HighSM ByRD and Finish LowSM ByRD. A
Finish High ByRD is similar to a standard listed call option in that an investor
purchasing a Finish High ByRD is bullish on the underlying security. A Finish
Low ByRD is similar to a standard listed put option in that an investor
purchasing a Finish Low ByRD is bearish on the underlying security. An
investor long on a Finish High ByRD receives $100.00 if it is in the money at
expiration whereas an investor long a Finish Low ByRD receives $100.00 if it is
in the money at expiration.

ByRDs are currently listed on 19 equities and ETFs with more expected
additions in the near future. ByRDs are cleared and settled by the Options
Clearing Corporation (OCC) and can be bought or sold anytime during the life of
the contract. ByRDs have expirations every Friday for five consecutive
Fridays. ByRDs are European style exercise, are cash settled, have unique
symbols with $1 strike price increments and trade in pennies.

Many of the strategies used with standard listed options will work using
ByRDs. For example, just as calls and puts may be used for speculating on
volatility in an underlying security or ETF, so too can ByRDs. The defined
risk offered by ByRDs makes them an attractive tool for use in income-generating
strategies and in situations where assignment of a short position would result
in a sale of stock and a taxable event. In addition, combining two ByRD spreads
will create a risk-return profile similar to complex strategies such as
Butterflies and Condors.

While ByRDs are similar to standard listed options, there are differences in
settlement that should be understood. ByRDs settle based on an all-day
expiration day volume weighted average price (VWAP). The VWAP is
calculated and disseminated at least every 15 seconds every trading day. Since
ByRDs settle based on the VWAP, whereas standard options settle based on the
underlying closing price, the closing values may differ. A trader using
ByRDs must pay attention to both the underlying price and the VWAP, with special
attention to the VWAP on expiration day.

Another notable difference between ByRDs and standard options is the maximum
gain and loss characteristics. A long ByRD has a maximum gain of $100.00,
minus the premium paid, whereas standard call options have an unlimited upside
potential above break-even for calls and a substantial upside potential for
puts. On the short side, the maximum gain is the same for ByRDs and standard
options, which is the premium received. The risk, however, is very
different. ByRDs losses are limited to $100.00, less the premium
received. Whereas short uncovered calls carry unlimited risk and short
uncovered puts carry risk equivalent to the underlying stock.

In conclusion, ByRDs are a unique tool that can enhance an investor's ability
to benefit from various market conditions and expectations.

FURTHER INFORMATIONThis document is provided as a
summary for reference purposes only and may not be comprehensive or
authoritative. For specific details regarding ByRDs or for additional
information, please go to www.nyse.com/byrds or email us at byrds@nyse.com.